Honkarakenne Oyj’s Half Year Financial Report, 1 January

HONKARAKENNE OYJ HALF YEAR FINANCIAL REPORT 9 August 2018 at 9:00 a.m.

HONKARAKENNE OYJ’S HALF YEAR FINANCIAL REPORT, 1 JANUARY – 30 JUNE 2018

NET SALES AND ORDER BOOK GREW, FINANCIAL POSITION STRENGTHENED

In the first half of the year net sales grew and operating result weakened compared to the first half of the previous year. The negative development of the operating result was impacted by the Group’s outlays on sales and marketing as well as deliveries being pushed forward from report period to the last part of the year. Net sales were MEUR 19.7 (MEUR 17.9 a year earlier) and operating result was MEUR –0.7 (MEUR –0.1). At the end of June, the order book was 33 per cent higher than a year earlier.

January - June 2018

Honkarakenne Group's net sales January-June amounted to MEUR 19.7 (MEUR 17.9 in 2017), representing an increase over the same period the previous year of 10%.
The operating result was MEUR -0.7 (MEUR -0.1). Adjusted operating result was MEUR -0.7 (MEUR -0.2).
The loss before taxes was MEUR -0.8 (MEUR -0.1).
Earnings per share amounted to EUR -0.17 (EUR -0.08).

Honkarakenne reiterates its view that net sales in 2018 will be higher and the profit before taxes will be better than in the previous year.

KEY INDICATORS	1-6/ 2018	1-6/ 2017	1-12/ 2017

Net sales, MEUR	19.7	17.9	43.4
Operating profit/loss, MEUR	-0.7	-0.1	1.7
Adjusted operating profit/loss, MEUR	-0.7	-0.2	1.5
Profit/loss before taxes, MEUR	-0.8	-0.1	1.7
Adjusted profit/loss before taxes, MEUR	-0.8	-0.3	1.6
Average number of personnel	144	135	137
Personnel in person-years, average	121	111	117
Earnings/share (EPS), EUR *)	-0.17	-0.08	0.15
Equity ratio, %	45	38	51
Return on equity, %	-12	-6	11
Shareholders' equity/share, EUR *)	1.37	1.31	1.53
Gearing, %	-9	54	5

Marko Saarelainen, President and CEO of Honkarakenne Oyj, in connection with the half-year report:

“We worked on our new strategy in the first half of the year. The aim of our revised strategy is for Honkarakenne to reach a new level in its business operations and reinforce its position as a leading international supplier of high-quality wood construction and services. With the new strategy, we will implement our vision as a pioneer of ecological and healthy living and housing.

In Finland, net sales saw positive development with year-on-year improvement of 16 per cent, even though the late spring and congestion in the processing of building permits, especially in the largest cities, resulted in deliveries being pushed forward in Finland. Finland accounted for 67 per cent of net sales. Sales of detached houses grew in particular.

In Russia & CIS, sales developed at a slightly slower rate than expected, and it is forecast that the rest of the year will remain challenging as well. In Global Markets, the trend in net sales was in line with the company’s expectations. Sales performed best in Asia, especially in Japan, but new deals were made in other territories of Asia and in Oceanian countries as well. Outlays on international project sales will continue.

At the end of the review period, our order book was 33 per cent higher than in the corresponding period of the previous year.

During the review period The Group's financial position strengthened and the Group repaid its financial liabilities. At the end of the report period the Group’s liquid assets exceeded its financial liabilities.

In addition to engaging in strategy work, we have developed our other functions in the first part of the year and these efforts are ongoing. The company is carrying out other projects to develop its operations, the most significant of which involve the modernisation of the ERP and sales IT systems. The company has also initiated activities to renew the production equipment in the mill.”

NET SALES

The Group’s first half year net sales in 2018 increased by 10% to MEUR 19.7 (MEUR 17.9).

Geographical distribution of net sales:

MYYNNIN KEHITYS
Liikevaihdon jakauma, %	1-6/2018	1-6/2017
Finland	67 %	63 %
Russia & CIS	13 %	12 %
Global Markets	20 %	25 %
Yhteensä	100 %	100 %

Liikevaihto, milj. euroa	1-6/2018	1-6/2017	muutos %
Finland	13,1	11,3	16 %
Russia & CIS	2,6	2,2	16 %
Global Markets	4,0	4,4	-8 %
Yhteensä	19,7	17,9	10 %

Finland also includes billet sales and sale of process byproducts for recycling.

Russia & CIS includes the following countries: Russia, Azerbaijan, Kazakhstan and other CIS countries.

Global Markets includes other countries than the above-mentioned.

At the end of June, the Group’s order book stood at MEUR 30.0, as compared to MEUR 22.5 a year earlier. At the end of June, the order book was 33% better than a year earlier. Partly public and care home construction contributed to growth. Exclusive of such construction, the order book was 12% better than in the previous year.

TRENDS IN PROFIT AND PROFITABILITY

The adjusted operating loss for the January-June period was MEUR -0.7 (MEUR -0.2), the operating loss was MEUR -0.7 (MEUR -0.1) and the result before taxes was MEUR -0.8 (MEUR -0.1). There were no adjustment items in the review period (in the corresponding period of the previous year, adjustment items included capital gains of MEUR 0.1 from the sale of properties included in fixed assets).

In the first half of the year, the development of the operating result was negatively impacted by the late spring and congestion in the processing of building permits in large cities. These led to deliveries being pushed forward in Finland. The negative development of the operating result was also impacted by the Group’s outlays on sales and marketing as well as other development measures carried out in the Group.

FINANCING AND INVESTMENTS

The Group's financial position strengthened during the review period. The Group’s equity ratio stood at 45% (38%) and gearing was negative at -9% (54%) at the end of June. During the first half of the year, the Group made debt repayments of MEUR 1.3 to its financial liabilities and at the end of the review period the Group’s net financial liabilities stood at MEUR -0.7 (MEUR 4.2), that is, the Group’s liquid assets exceeded its financial liabilities. Liquid assets totalled MEUR 3.0 (MEUR 2.5). The Group also has a MEUR 5.1 (5.4) bank overdraft facility, MEUR 0.0 of which had been drawn on at the end of the review period (MEUR 2.9).

The Group’s capital expenditure totalled MEUR 0.6 (MEUR 0.2). The company has ordered production equipment valued at MEUR 0.5, for which prepayments of MEUR 0.2 have been made. The equipment will be delivered and installed later. The company is carrying out system projects to develop its operations. The most significants of these projects involve the modernisation of the ERP and sales systems. The overhauled systems are expected to be deployed in 2018.

MOST SIGNIFICANT EVENTS DURING THE REPORT PERIOD

In May, Honkarakenne announced that it will launch a new product alongside its log buildings: timber frame structured solid wood buildings. In future, Honkarakenne will offer timber frame structured buildings ranging from holiday homes and detached houses to commercial buildings. The company will publish its timber frame collection in autumn 2018. The first timber frame structured projects have already been sold.

In June, Honkarakenne announced that it has updated its strategy. The aim of our revised strategy is for Honkarakenne to reach a new level in its business operations and reinforce its position as a leading international supplier of high-quality wood construction and services. With the new strategy, we will implement our vision as a pioneer of ecological and healthy living and housing. Honkarakenne aims for profitable net sales growth in selected key markets. The company’s business areas, BA Finland, BA Russia & CIS and BA Global Markets, remain unchanged. Sales in all areas are based on an effective representative network.

The strategic objectives of Honkarakenne until 2021 are as follows:

Profitable net sales growth
Increase in net sales from service business
Increase in the volume of exports
Maintaining the strong equity ratio
Enhancing production by means of improved competitive operating models and investments

However, these long-term objectives are not intended to be understood as market guidance for any one year.

PRODUCTS AND MARKETING

In Finland, sales saw positive development with year-on-year improvement of 16 per cent, even though the late spring and congestion in the processing of building permits, especially in the largest cities, resulted in deliveries being pushed forward in Finland. Sales of detached houses grew in particular. In the first months of the year, the company prepared for the Pori Housing Fair, where Honka presented the Kontti collection created for Honka by the internationally renowned designer Harri Koskinen. In addition, the sales and development of the new timber frame structured collection started in May-June. The Honka care home projects implemented as design-and-build contracts progressed on schedule, and the log day care centre being implemented in Lahti reached its roof height. The company focused on sales in the first half of the year by carrying out marketing measures, growing the representative network, starting up the modernisation of sales IT systems and launching a sales development programme.

In Russia & CIS, sales developed at a slightly slower rate than expected, and it is forecast that the rest of the year will remain challenging as well. The company seeks to generate net sales in the latter half of the year by focusing on projects and area development projects. Buildings delivered by Honka gained positive attention: In Belarus, Honka’s cooperation partner won an award as “the number one wood building construction company”, selected by consumer votes and an expert jury. At fair held in Moscow, two log buildings delivered by Honka ranked among the best in the “Beautiful Log Houses 2018” competition. These houses are located in the Copper Lake 2 village close to St Petersburg.

In Global Markets, the trend in net sales was in line with the company’s expectations. Sales performed best in Asia, especially in Japan, but new deals were made in other territories of Asia and Oceania as well. Outlays on project sales will continue. Central Europe remained problematic and the reorganisation of functions in that region is ongoing. Local marketing campaigns were carried out in Global Markets.

RESEARCH AND DEVELOPMENT

In the January–June period, the Group's R&D expenditure totalled MEUR 0.1 (MEUR 0.1), representing 0.6% of net sales (0.6%). The Group did not capitalise any development expenditure during the report period.

PERSONNEL

In the first half of the year, the Group’s number of personnel grew, especially in the case of white-collar employees. During the first half of the year, the Group employed a total of 121 (111) people on average in terms of person-years. The Group had an average of 144 (135) employees in terms of employment during the first half of the year.

Last year, Honkarakenne conducted codetermination negotiations in preparation for cyclical variations that are typical in our industry. It was agreed that the company could lay off clerical and managerial employees for a maximum of 90 days. It was also agreed that blue-collar workers would have shorter workweeks. The authorisation to lay off blue-collar workers was later extended by two months. The lay-off plan was effective until 31 March 2018 for white-collars and until 30 June 2018 for blue-collar workers.

HONKARAKENNE OYJ’S 2018 ANNUAL GENERAL MEETING, BOARD OF DIRECTORS, AND AUDITORS

The Annual General Meeting of Honkarakenne Oyj was held at Honkarakenne Mill in Karstula on 13 April 2017. The AGM approved the parent company's and the consolidated Financial Statements, and discharged the members of the Board of Directors and the CEO from liability for 2017. The AGM decided not to pay a dividend for the 2017 financial year.

Timo Kohtamäki, Arimo Ristola and Kyösti Saarimäki were re-elected to the company's Board of Directors. Helena Ruponen and Kari Saarelainen were elected as new board members. At the Board's constituent meeting, Arimo Ristola was elected Chairman of the Board. At the same meeting, the Board decided not to establish any committees.

Ernst & Young Oy, member of the Finnish Institute of Authorised Public Accountants, was appointed as auditor of the company, with Elina Laitinen, APA, as chief auditor.

AUTHORISATIONS OF THE BOARD OF DIRECTORS

On 13 April 2018, the AGM decided that the Board of Directors will be authorised to acquire a maximum of 400,000 of the company’s own B shares with assets included in the company’s unrestricted equity. In addition, the AGM authorised the Board to decide on a rights issue or bonus issue and on granting special rights to shares referred to in Section 1 of Chapter 10 of the Limited Liability Companies Act in one or more instalments. By virtue of the authorisation, the Board may issue a maximum total of 1,500,000 new shares and/or relinquish old B shares held by the company, including those shares that can be issued by virtue of special rights. Both authorisations will remain in force until the next Annual General Meeting, however expiring at the latest on June 30, 2019.

SHARES, SHARE CAPITAL AND OWN SHARES
During the review period, the total number of Honkarakenne Oyj shares amounted to 6,211,419, of which 300,096 were Series A shares and 5,911,323 Series B shares. The company’s share capital remained unchanged and was EUR 9,897,936.00. Each B share carries one (1) vote and each A share carries twenty (20) votes. Hence, Honkarakenne’s shares in aggregate at the end of the review period carried a total of 11,913,243 votes.
Honkarakenne’s Series B shares are quoted in the Small Caps list of NASDAQ OMX Helsinki Ltd under the short name HONBS. In January-June, the highest price of the Series B share in trading was EUR 4.02 and the lowest EUR 3.28. The closing price was EUR 3.50. The value of trading in Series B shares was MEUR 4.7 with a turnover of 1.2 million shares.

Honkarakenne has not acquired its own shares during the report period. At the end of the report period, the Group held 364,385 of its Honkarakenne B shares with a total purchase price of EUR 1,381,750.23. At the end of report period these shares represent 5.87% of the company's all shares and 3.05% of all votes. The purchase cost has been deducted from shareholders' equity in the consolidated financial statements.

CORPORATE GOVERNANCE

Honkarakenne Oyj follows the Limited Liability Companies Act and the Finnish Corporate Governance Code 2015 for listed companies issued by the Finnish Securities Market Association. The company’s website, www.honka.com, provides more information on the corporate governance systems.

FORTHCOMING RISKS AND UNCERTAINTIES

Demand for Honkarakenne’s products is significantly affected by the general development of the economy, currency exchange rates, consumer confidence in their own finances and competition in the industry. If demand falls sharply, this could have significant impacts on the company’s earnings trend.

Russia is one of Honkarakenne’s major business territories. The sanctions connected to the situation in Ukrainia and strong exchange rate fluctuations currently cause instability in the Russian market. This might also have significant effects on Honkarakenne’s business.

The assessment of amounts in the balance sheet is based on current assessments by the management. If these assessments are changed, this may impact on the company’s result.

REPORTING

This report contains statements that relate to the future, and these statements are based on hypotheses that the company's management hold currently as well as on the decisions and plans that are currently in place. Although the management believes that the hypotheses relating to the future are well-founded, there is no guarantee that the said hypotheses will prove to be correct.

This half-year financial report has been drafted in accordance with IAS 34. The half-year financial report should be read together with the 2017 financial statements. This half-year financial report has been drafted in accordance with the same accounting principles applied in the 2017 financial statements, with the exception of standards and interpretations that have come into force on 1 January 2018 or thereafter.

The half-year financial report has not been audited and the figures have not been examined by the auditor.

Honkarakenne Group adopted IFRS 9 Financial Instruments on 1 January 2018 prospectively with the allowed transitional reliefs. IFRS 9 includes requirements on the classification and valuation of financial assets and liabilities, new guidance on hedge accounting, and a new model for determining impairment of financial assets based on expected credit losses. Honkarakenne has not applied hedge accounting and has not made a decision on starting hedge accounting in accordance with IFRS 9. In the first half of 2018, the company did not have any forward exchange contracts or interest rate swaps. At the Honkarakenne Group, IFRS 9 affects the valuation of trade receivables. The Group uses a simplified procedure for their valuation, in which trade receivables are categorised according to their due date and the assumed impairment is estimated for each category. The application of IFRS 9 did not have a significant impact on the opening balance sheet.

The Honkarakenne Group adopted IFRS 15 Revenue from Contracts with Customers on 1 January 2018 and applies the cumulative effect method in accordance with the standard. The Group sells and manufactures log and solid wood building packages as well as their design and construction services. In addition to house packages and construction services, the Group sells log billets and byproducts of the manufacturing process. Revenue from house packages, log billets and byproducts is recognised at a point in time when control of the goods is transferred to the customer. Revenue from the sale of services is recognised either at a point in time or over time, depending on the service, the terms and conditions of the agreement, and the duration. Sales revenue is recognised over time for agreements in which the asset item is under the control of the customer while the company creates or improves it. Such customer agreements may include materials and services, or just services. Earlier, such agreements of major significance in terms of time and value were treated as long-term projects and recognised on the basis of percentage of completion. The revenue recognition principle for such customer agreements of major significance in terms of time and value (incl. design and build contracts) has remained almost unchanged, but in certain cases additional work, for instance, could be considered to constitute a performance obligation that is separate from the main product. The company recognises sales revenue from customer agreements that are recognised over time by specifying the progress towards the fulfilment of each agreement. The Group deems that the progress towards the fulfilment describes the fulfilment of the entire performance obligation, that is, the transfer of control of the goods and services in question. The Group uses an input-based method to determine the progress towards the fulfilment, in which the costs incurred are compared with estimated total costs (cost-based input method, percentage-of-completion method). The application of IFRS 15 did not have a material impact on the opening balance sheet.

Other revised standards and interpretations that came into force on 1 January 2018 did not have a material impact on the figures presented for the review period.

Honkarakenne complies with the Guidelines on Alternative Performance Measures (APM) issued by the European Securities and Markets Authority (ESMA). An APM is a financial measure of performance other than a financial measure defined or specified in IFRS. For this reason, the term “adjusted” is used instead of “without non-recurring items”. As adjustment items, the company classifies significant business transactions that are considered to affect comparisons between different reporting periods. Such transactions include significant reorganisation expenses, significant impairment losses or reversals thereof, significant capital gains and losses on assets, and other significant non-customary income or expenses.

THE OUTLOOK FOR 2018

Honkarakenne reiterates its view that net sales in 2018 will be higher and the profit before taxes will be better than in the previous year.

HONKARAKENNE OYJ

Board of Directors

Further information:
Marko Saarelainen, President and CEO, tel. +358 (0)40 542 0254, marko.saarelainen@honka.com or
Leena Aalto, Vice President - Finance, CFO, tel. +358 (0)40 769 4590, leena.aalto@honka.com

This and previous releases are available for viewing on the company’s website at www.honka.com.

DISTRIBUTION
NASDAQ OMX Helsinki
Key media
Financial Supervisory Authority
www.honka.com

Under its Honka® brand, Honkarakenne manufactures high-quality, healthy and ecological detached houses, holiday homes and public buildings using Finnish solid wood. The company has delivered 85,000 buildings to more than 50 countries. House packages are made in Finland, the companys’s own factory is located in Karstula, Finland. In 2017, the Honkarakenne Group had net sales of MEUR 43.4, of which exports accounted for 41%. www.honka.com

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited	1-6 /2018	1-6 /2017	1-12 /2017
MEUR

Net sales	19.7	17.9	43.4
Other operating income	0.1	0.2	0.5
Change in inventories	0.4	1.0	1.5
Work performed for own purposes and capitalised	0.1	0.0	0.2
Materials and services	-13.9	-12.7	-30.2
Employee benefit expenses	-3.8	-3.4	-6.9
Depreciations and amortisation	-0.6	-0.8	-1.7
Other operating expenses	-2.8	-2.4	-5.1
Operating profit/loss	-0.7	-0.1	1.7
Financial income	0.1	0.1	0.3
Financial expenses	-0.2	-0.2	-0.3
Share of associated companies' result	0.0	-0.0	0.1
Profit/loss before taxes	-0.8	-0.1	1.7
Taxes	-0.3	-0.3	-0.8
Profit/loss for the period	-1.0	-0.5	0.9

Other comprehensive income
Translation differences	0.1	-0.0	-0.1
Total comprehensive income for the period	-0.9	-0.5	0.8

Result for the period attributable to
Equity holders of the parent	-1.0	-0.5	0.9
Non-controlling interest	0.0	0.0	0.0
	-1.0	-0.5	0.9
Comprehensive income attributable to
Equity holders of the parent	-0.9	-0.5	0.8
Non-controlling interest	0.0	0.0	0.0
	-0.9	-0.5	0.8
Calculated from the result for the period attributable to equity holders of parent Earnings/share (EPS):
Basic, EUR	-0.17	-0.08	0.15
Diluted, EUR	-0.17	-0.08	0.15

Honkarakenne Oyj has two series of shares: A shares and B shares, which have different right to dividend. Profit distribution of 0.20 EUR per share will be paid first for B shares, then 0.20 EUR per share for A shares, followed by equal distribution of remaining profit distribution between all shares.

CONSOLIDATED BALANCE SHEET Unaudited	30.6.2018	30.6.2017	31.12.2017
MEUR

Assets
Non-current assets
Property, plant and equipment	8.3	9.0	8.5
Goodwill	0.1	0.1	0.1
Other intangible assets	0.3	0.1	0.1
Investments in associated companies	0.3	0.2	0.2
Receivables	0.1	0.1	0.1
Deferred tax assets	2.0	2.5	2.0
	11.2	12.0	11.1
Current assets
Inventories	5.7	5.1	5.3
Trade and other receivables	4.6	4.1	2.6
Tax receivable, income tax	0.0	0.1	0.0
Cash and cash equivalents	3.0	2.5	3.1
	13.4	11.9	11.0
Total assets	24.5	23.9	22.1

Shareholders’ equity and liabilities	30.6.2018	30.6.2017	31.12.2017

Equity attributable to equity holders of the parent company
Share capital	9.9	9.9	9.9
Share premium account	0.5	0.5	0.5
Fund for invested unrestricted equity	8.0	8.0	8.0
Own shares	-1.4	-1.4	-1.4
Translation differences	0.1	0.0	0.0
Retained earnings	-9.1	-9.4	-8.1
	8.0	7.7	9.0
Non-controlling interests	0.0	0.0	0.0
Total equity	8.0	7.7	9.0

Non-current liabilities
Deferred tax liability	0.1	0.0	0.1
Provisions	0.2	0.2	0.2
Financial liabilities	1.9	3.0	2.4
	2.2	3.2	2.7
Current liabilities
Trade and other payables	13.4	8.7	8.9
Current tax liabilities	0.2	0.4	0.2
Provisions	0.2	0.2	0.2
Current financial liabilities	0.5	3.7	1.2
	14.3	13.0	10.5
Total liabilities	16.5	16.2	13.1
Total equity and liabilities	24.5	23.9	22.1

STATEMENT OF CHANGES IN EQUITY
abridged
Unaudited

EUR thousand		Equity attributable to equity holders of the parent
	a)		b)	c)	d)	e)	f)	Total	g)	Total equity
Total equity 1.1.2017	9898		520	6534	97	-1382	-8993	6674	4	6678
Profit/loss for the period							-453	-453	0	-453
Translation difference					-48			-48		-48
Directed issue				1500				1500		1500
Total equity 30.6.2017	9898		520	8034	49	-1382	-9447	7673	4	7677
1000 eur		Equity attributable to equity holders of the parent
	a)		b)	c)	d)	e)	f)	Total	g)	Total equity
Total equity 1.1.2018	9898		520	8034	5	-1382	-8123	8953	4	8957
Profit/loss for the period							-1019	-1019	0	-1019
Translation difference					53			53		53
Total equity 30.6.2018	9898		520	8034	59	-1382	-9142	7987	5	7992

a) Share capital
b) Share premium account
c) Fund for invested unrestricted equity
d) Translation difference
e) Own shares
f) Retained earnings
g) Non-controlling interests

CONSOLIDATED STATEMENT OF CASH FLOWS abridged Unaudited	1.1.- 30.6.2018	1.1.- 30.6.2017	1.1.- 31.12.2017
MEUR
Cash flow from operating activities	1.8	-0.7	3.5
Cash flow from investing activities, net	-0.6	0.0	-0.4
Total cash flows from financing activities	-1.3	2.8	-0.3
Proceeds from share issue	0.0	1.5	1.5
Proceeds from borrowings	0.0	1.6	0.0
Repayment of borrowings	-1.3	-0.3	-1.8
Other financial items	-0.0	-0.0	-0.0

Change in cash and cash equivalents	-0.1	2.1	2.8
Cash and cash equivalents at the beginning of period	3.1	0.4	0.4
Cash and cash equivalents at the close of period	3.0	2.5	3.1

NOTES TO THE REPORT

Accounting policies

The half-year financial report has not been audited and the figures have not been examined by the auditor.

Other revised standards and interpretations that came into force on 1 January 2018 did not have a material impact on the figures presented for the review period.

Honkarakenne complyes with the Guidelines on Alternative Performance Measures (APM) issued by the European Securities and Markets Authority (ESMA). An APM is a financial measure of performance other than a financial measure defined or specified in IFRS. For this reason, the term “adjusted” is used instead of “without non-recurring items”. As adjustment items, the company classifies significant business transactions that are considered to affect comparisons between different reporting periods. Such transactions include significant reorganisation expenses, significant impairment losses or reversals thereof, significant capital gains and losses on assets, and other significant non-customary income or expenses.

In Honkarakenne’s view, Alternative Performance Measures provide significant additional information to management, investors, securities analysts and other parties on Honkarakenne’s result of operations, financial position and cash flows, and are frequently used by analysts, investors and other parties. Return on equity, equity ratio, net financial liabilities and gearing are presented as supplementary key figures, as in the company’s view they are useful indicators for assessing Honkarakenne’s ability to acquire financing and pay its debts. In addition, gross investments and R&D expenditure provide additional information on needs related to Honkarakenne’s cash flow from operating activities.

Honkarakenne has three geographical operating segments that have been combined into one segment for reporting purposes. Geographically, sales are divided as follows: Finland, Russia & CIS and Global Markets. The internal reporting of the management is in line with IFRS reporting. For this reason, separate reconciliations are not presented.

Property, plant and equipment
Unaudited
MEUR	30.6.2018	30.6.2017	31.12.2017

Cost 1.1.	48.6	48.3	48.3
Increase	0.4	0.2	0.5
Disposals	0.0	0.0	-0.2
Cost 30.6.	49.0	48.5	48.6

Accumulated depreciation 1.1.	-40.0	-38.7	-38.7
Accumulated depreciation of disposals	0.0	0.0	0.2
Depreciation for the period	-0.6	-0.8	-1.6
Accumulated depreciation 30.6.	-40.7	-39.4	-40.0

Carrying amount 1.1.	8.5	9.6	9.6
Carrying amount 30.6.	8.3	9.0	8.5

The company has ordered production equipment valued at MEUR 0.5, for which prepayments of MEUR 0.2 have been made. The equipment will be delivered and installed later.

Contingent liabilities

Unaudited	30.6.2018	30.6.2017	31.12.2017
MEUR
For own loans
- Mortgages	13.3	17.4	17.4
- Other quarantees	3.5	2.0	2.4
Rental liabilities	0.0	0.1	0.0
Leasing liabilities	0.2	0.1	0.2
Derivative contracts	0.0	0.1	0.0
Nominal values of forward exchange contracts	0.0	1.0	0.0

Events with related parties

The Group’s related parties consist of subsidiaries and associated companies; the company's management and any companies in which they exert influence; and those involved in the Saarelainen shareholder agreement and any companies controlled by them. The management personnel considered to be related parties comprise the Board of Directors, President & CEO, and the company's Executive Group. The pricing of goods and services in transactions with related parties conforms to market-based pricing.

During the report period, ordinary business transactions with related parties were made as follows: sales of goods and services to related parties amounted to EUR 145 thousand and purchases from related parties to EUR 230 thousand. At the end of the review period, receivables from related parties amounted to EUR 26 thousand and liabilities to related parties to EUR 374 thousand.

As part of Honkarakenne’s financial arrangements, the main shareholder of Honkarakenne, Saarelainen Oy, granted Honkarakenne Oyj an unsecured junior loan amounting to MEUR 0.3 in November 2016. The junior loan is subordinated to loans from financial institutions. This loan and the interest on it are included in the figure for liabilities to related parties presented above.

Key indicators
		1-6/	1-6/	1-12/
Unaudited		2018	2017	2017

Earnings/share (EPS)	euro	-0.17	-0.08	0.15

Return on equity	%	-12	-6	11

Equity ratio	%	45	38	51

Shareholders equity/share	euro	1.37	1.31	1.53

Net financial liabilities	MEUR	-0.7	4.2	0.4

Gearing	%	-9	54	5

Gross investments	MEUR	0.6	0.1	0.5
	% of net sales	3	1	1

Order book	MEUR	30.0	22.5	23.0

Average number of personnel	White-collar	78	69	71
	Blue-collar	66	66	66
	Total	144	135	137

Personnel in person-years, average	White-collar	74	65	67
	Blue-collar	47	46	50
	Total	121	111	117

Adjusted number of shares (’000)	At period-end	5847	5847	5847
	Average during period	5847	5553	5677

Osakemäärät eivät sisällä konsernin hallussa olevia osakkeita.

Calculation of key indicators

	Profit / loss for the period attributable to equity holders of parent
Earnings/share (EPS):	-------------------------------------------------------------------------------
	Average number of outstanding shares

	Profit / loss before taxes – taxes
Return on equity %:	------------------------------------------------------------------------------	x 100
	Total equity, average

	Shareholders’ equity
Shareholders equity/share:	------------------------------------------------------------------------------
	Number of outstanding shares at the close of period

	Total equity
Equity ratio, %:	------------------------------------------------------------------------------	x 100
	Balance sheet total - advances received

Net financial liabilities:	Financial liabilities – cash and cash equivalents

	Financial liabilities – cash and cash equivalents
Gearing, %:	------------------------------------------------------------------------------	x 100
	Total equity

Honkarakenne Oyj’s Half Year Financial Report, 1 January – 30 June 2018